Strong mortgage lending figures in May skewed by slowdown a year ago

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Mortgage lending in the UK showed an increase in May but the market is less buoyant than the figures suggest due to a slowdown a year ago following stamp duty changes, the latest data shows.

The figures from UK Finance, the new lending and bank trade association which now incorporates the Council of Mortgage Lenders, show that home buyers borrowed £10.8 billion, up 10% on April and 16% on May 2016.

This equated to 58,400 loans, up 12% on April and 10% on May 2016 and within this, first time buyers borrowed £4.7 billion, up 12% both on last month and on May 2016, taking out 29,200 loans, up 13% month on month and 8% year on year.

Home movers borrowed £6.2 billion, up 11% on April and 22% year on year with some 29,200 loans, up 11% month on month and 13% compared to a year ago.

Home-owner remortgage activity was up 10% by value and 9% by volume on April and compared to a year ago it was up 12% by value and 7% by volume.

Gross buy to let totalled £2.9 billion in May, up 16% on April and 12% compared to May last year, equating to 19,100 loans, a 16% increase on April and 15% on a year ago.

‘The apparent strong growth in mortgage lending in May might flatter to deceive. The relative weakness in lending last May following the stamp duty changes makes comparisons misleading,’ said Paul Smee, head of mortgages at UK Finance.

‘The seasonally adjusted data shows a less buoyant lending picture, with home buying activity remaining relatively unchanged month on month and remortgage lending gradually decreasing each month since January,’ he pointed out.

‘In the summer months, we expect home buying activity to continue with an even split between first time buyers and home movers but in greater numbers than in the winter months. We expect buy to let to remain subdued compared to its recent 2015 peak,’ he added.

The figures also show that on a seasonally adjusted basis, lending to first time buyers and home movers declined by value and volume in May compared to April, but increased compared to a year ago. Buy to let and remortgage activity remained relatively unchanged in May from April.

Affordability metrics for first time buyers saw the typical loan size increase from £136,300 in April to £137,000 in May. The average household income decreased to £40,500 from £40,700. This meant the income multiple went up from 3.57 to 3.59.

The average amount borrowed by home movers in the UK increased to £177,000 from £176,500 the previous month, while the average home mover household income decreased month-on-month from £55,200 to £54,900. The income multiple for the average home mover went up to 3.38 from 3.35.

According to Shaun Church, director at mortgage broker Private Finance, a lack of available housing continues to limit lending volumes. ‘While supply issues persist we are unlikely to see a significant increase in lending. A sluggish remortgage market has also contributed to disappointing overall figures, with the data showing that seasonally adjusted lending for remortgage has fallen every month since January,’ he said.

But he believes that are some clear positives to be taken from these figures. ‘Lending remains stable in spite of wider political and economic uncertainty, suggesting the market has robust foundations. Demand from buyers continues to be supported by low mortgage rates and a growing number of products,’ he added.

Ishaan Malhi, chief executive of online mortgage broker Trussle, pointed out that while the housing market has been fairly subdued in recent months, remortgaging activity has remained resilient, thanks to the continued availability of attractive deals, which are encouraging more people to switch.

‘This market has a far greater capacity than its current operating levels, as there are two million people in the UK unnecessarily sitting on standard variable rate mortgages, likely to be paying far more interest than they would on the best market rates. If we’re to see remortgaging numbers rise further, as they should, more homeowners need to proactively manage their loan and switch to a better deal when their initial term is coming to an end,’ he explained.

Alastair McKee, managing director of UK wide independent mortgage broker, One 77 Mortgages, believes that interest rates are a key issue at a time when a rise is being talked about. ‘Despite big names like Standard & Poor’s predicting this week there would be no rise until 2019, canny borrowers are unhappy to take that risk and strengthening home owner remortgage activity is a reflection of this,’ he said.

‘Most of our clients think rises are more likely to come sooner than that and feel near record low rates are now on borrowed time. This is pushing home owners to lock in lower rates for longer while they can on fixed term deals,’ he added.

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Written by: Houseladder